Buying a commercial property for
your company is a substantial
investment that is influenced by a variety of factors and projections.
“Purchasing a building requires a significant outlay of capital,” says Scot
Farber, Senior Vice President, Southwest Region, for Grubb & Ellis Company’s Institutional Investment Group.
“Depending upon a company’s financial
strength, it may be more advantageous
to reinvest capital and grow the business, rather than purchase a building
that might not suit your long-term
requirements.”
Within the Dallas office market, the
options are plentiful for companies looking to buy or lease. Smart Business
talked to Farber about those options.
What are the potential benefits of owning
versus leasing a commercial property?
The greatest benefit of owning is
potential appreciation. Real estate can
be a tremendous long-term investment,
with a huge upside. Other benefits of
owning property include: the realization
of secondary income if part of your
building is leased to a third party, avoiding fluctuations in the leasing market
that may affect your lease rate and, finally, potential tax benefits from mortgage
interest deductions.
A less measurable benefit of owning
your own building is avoiding and really
eliminating control issues that might
arise with a landlord. One of the sometimes overlooked conveniences of owning a building is that you don’t have to
limit your hours of operation to the
owner’s specifications. If you want to
keep the office open until 10 p.m., or if
you want to work weekends, you can.
The primary benefit of leasing is flexibility, both financial and operational.
Buying a property requires a significant
investment of capital in the form of a
down payment, in addition to any out-of-pocket costs that may be necessary to
prepare the building for your use.
Leasing space allows you to reinvest
your capital to grow your core business.
Additionally, a lease commits you to a
building for a set period of time, while a
purchase could potentially tie you to the
real estate for a long run and expose you
to valuation losses.
Both leasing and buying carry tax benefits. In a commercial lease, the tenant
can write off lease expenses but will not
receive any long-term appreciation. If
you own, you can write off interest and
depreciation expenses but are fully
responsible for property taxes, insurance and operating expenses.
Where do the better deals exist, given the
current real estate market in Dallas?
Real estate is drive by a core ‘mantra’
— location, location, location. The best
locations in Dallas command premium
pricing. However, the hottest submarket
may not be the right location for your
business.
Typically, the high-profile locations offer greater possibilities for leasing.
Downtown, Las Colinas, Far North
Dallas and LBJ Freeway are a few sub-markets where the options for building
purchases are limited. However, if you
can operate your business from a secondary location, there could be solid
options to lease or buy that make sound
financial sense. In other words, there
may be opportunities to buy a building in
or near your desired location that can
save you money when compared to leasing space in the same area.
As one of the country’s largest office
markets, Dallas offers tenants properties
in all ranges and sizes. Buying or leasing,
large or small, there is most likely a
property available to accommodate your
needs.
How do you, as a commercial real estate
consultant, advise potential clients?
The recommendations of a real estate
agent or consultant are going to depend
on your objectives and long-term business plan. Five-, 10- and even 15-year
business plans will greatly impact his or
her recommendations.
A real estate consultant would take
into consideration what’s happening in
the leasing market currently and in the
long run. Most tenants sign leases for
three to 10 years [five- to seven-year
leases are the norm], and so there is a
great deal of planning required to ensure
that long-term requirements are met by
today’s decisions. Base rental rate, building operating costs, market and submarket growth, proximity to employment
pools, and leasing incentives are just a
few of the factors that go into a considered recommendation from a real estate
professional.
SCOT FARBER is Senior Vice President, Southwest Region for
Grubb & Ellis Company’s Institutional Investment Group. Reach
him at (972) 450-3251 or [email protected].
